Greece: Stalling for time
Greece’s rejection of stringent ECB-IMF conditions puts the EU’s economic future into question
Hardnews Bureau Delhi
On July 6, almost 61 per cent of the Greek population said a resounding ‘oxi’, or ‘no’ in Greek, to the austere conditions suggested by Germany and its team of creditors. Greece’s left wing Prime Minister Alexis Tsipras’s party Syrizia came to power some months ago on the promise to resist the creditors and somehow find a better deal for the harassed people, so the result of the referendum could either sink Greece into deeper misery or help chart out a new course for its resurrection.
Greece has huge debt, and it defaulted in paying its last installment of $ 1.05 billion, which prevented the country from accessing the $ 250 billion bail fund. The country was seen to be at the mercy of the ECB- IMF-led creditors, till Tsipras and his charismatic Finance Minister Yanis Varoufakis decided to stand up to the pressure and put up to vote the issue of greater austerity. Varoufakis, who termed creditors “terrorists” and staked his continued service on the outcome of the referendum, resigned after the successful verdict. The ‘no’ will help the government of Greece negotiate a better credit deal. Before the referendum, creditors were demanding Greece intensify its austerity programme, which meant further cuts on pensions and increased value-added taxes. Once the results were announced, supporters of PM Tsipras broke into a dance in Athens Syntagma square, a site of much turmoil these last few years.
The country has gone through hell since 2010. Unemployment in Greece has soared to more than 25 per cent, and there is little clue as to whether these austerity measures will really work. Other countries lauded as success stories, like Spain and Portugal, have suffered as well, with equally precipitous unemployment rates. The success of these countries’ turnarounds is apparent only from a macroeconomic standpoint, where their growth rate increase of 0.5 per cent is considered a major improvement in their fortunes. Greece has been pressured to stay the course like Portugal and Spain, where these so-called “policies” seem to be working. Reports from the ground, however, are deeply disturbing, and many social scientists have called this generation “lost”, since youth have been compelled to leave the comfort of working in their country to look for jobs elsewhere. Young Spanish and Portuguese have moved in hordes to other parts of Europe and to Latin American countries, where language is an asset. Greeks have migrated in thousands to other European countries, and have gone as far as Australia. On a trip to Greece, the ravages of austerity were evident in the penniless and unemployed youth. How to comprehend the contradiction of poverty in a country with so much abundance? With ample natural beauty, bountiful agriculture, an ancient civilization and a rocking tourism industry, financial destitution is more than incongruous. By the look of it, tourism was strong enough to ride out the crisis, but what came out clearly was that the economy was badly mismanaged, with a large part of the population not paying their taxes. The wasteful expenditure during the Olympics and large scale corruption also hurt the country’s balance sheet.
European slowdown aggravated the vulnerabilities of the Greek economy and allowed the European Union to find a solution to the crisis. In any other economy, the finance minister of the day would have resorted to devaluation of the currency—in this case the Euro—and allowed the economy to adjust accordingly. However, Greece’s induction into the European Union means that the Euro is fixed by the European Central Bank, and individual states have to adjust their policies accordingly. Suggestions of Greece exiting the EU have been debated furiously. Termed ‘Grexit’, the debate is whether EU can survive a Greek exit. And if Greece leaves, then what about other countries, such as Spain and Portugal, which have caused so much grief to their people in the name of preserving the value of Euro. Germany’s tough Chancellor, who rides a tidal wave of about 67 per cent popularity for making it clear that Greece will receive no debt relief unless it submits to ECB and IMF conditions, must now take a call on how to deal with the defaulting country. Meanwhile, Russia and China express solidarity with Greece, and see this as an opportunity to strike a few more death blows to the creaking IMF-WB-controlled economic order. Until these issues are sorted, Greece will hope that its ATMs continue to work and its economic wheels proceed.